Contrary to other regulated sectors where capital expenditure and tariff are defined, how RIL’s capital expenditure was approved in a non-transparent manner, Chalsani wondered and said that high capital cost by gas producer would only lead to lower returns for the government and high prices for the end users. Chelsani’s comments coincide with the on-going exercise in the government for fixing the price of natural gas and the formula by RIL, which seeks to sell gas at up $to 4.58 per million British thermal unit at the land-fall point at Kakinada in Andhra Pradesh. After detailed discussions, the Committee of Secretaries has sent its recommendations to the Petroleum Ministry, amid reports of inter-ministerial differences on the issue, for further action and a decision is expected to be announced soon.

The suggestion by the Anil Ambani Group that arbitrary high prices of Natural Gas will hurt Power and Fertiliser sectors has been contested by many experts who feel that the goalpost cannot be shifted after the terms have been settled while allocating gas field for exploration by the ministry.

When E&P was controlled and under the cost plus fixed return regime the E&P sector could not take off as no one was willing to deploy risk capital in which all the costs incurred in blocks/ wells that did not achieve commerciality is only borne by operator while on striking hydrocarbon the proceeds are shared with govt which pockets the larger

share by the virtue of the “quantum of govt take” being the criterion for award of block.

Further, power based on standard equip and technology available widely. Deep water is a frontier technology with operations and technology akin to exploring the moon/space. Reservoir risk is huge and has hurt the biggest companies as geology 3 km under sea level may differ widely and is specific to that operation only.

Despite this difference and relative simplicity of power sector, private investments are dismal, though tall statements are made of the thousands of megawatt plans even though the existing capacity may not cross 1000 MW.

Small companies with negligible existing capacity and no capacity addition in the past decade are laughably claiming that gas price could affect investment in this area.

Reliance sources added that the serious power companies Tata, AES and Torrent have indicated their extreme satisfaction with price and are ready to pay a substantial premium. Some companies that have never ever executed any large project will keep finding reasons to hide their incompetence.

Despite the regulation that is much touted the consumer are forced to bear costs resulting from poor and careless decision of power companies as was the case recently in which power companies are making the consumer bear the take or pay charges resulting from the poorly planned power offtake commitments.

In contrast the E&P activity in India is moving at great pace and serious investments and money has already been spent on the ground. Perhaps these upstream companies should be invited by the govt to set up even the power projects so that power sector finally wakes up.

On the issue of arbitrary capital cost, the DGH official commented that it seems that REL is not aware that there is a procurement process manual that is comprehensive with extensive procedures and checks and balances on the costing. Any amount that is extravagant or could have been managed prudently will not be approved for cost recovery. The official added that RIL has categorically welcomed any verification or auditing by the govt and CAG or others as they have innovatively finalised the inputs at the lowest cost/unit basis anywhere in the world.

Hence again this is a bogey that should be dismissed.

On the issue of PSC stipulating policy on pricing and allocation, a senior official of the MoPNG commented that the contract required the price to be based on prevailing policy if any and the process of approving / validating the operators price the govt could delegate this function to the regulator when created for the purpose and the operating part is “delegate” clearly establishing the unconditional right of the govt to ensure that

market determined rates are obtained. Even in the current instance, RIL’s submission will be assessed as que per què the pricing committee recommendations.

On the allocation of gas the govt is very keen to implement the same as soon as possible as gas is a national asset that one can allot to another due to non commercial and internal family arrangements. Recently DGH has asked the govt to track the RNRL court case and take appropriate steps as RIL can only sell its portion of the cost and profit gas and any contract to sell the portion of govt’s gas and that of Niko is infructious and cannot pass legal scrutiny and for his purpose govt has added this clause to the PSC.

Technorati Tags: Adag, Pricing, Questioning, Substantiation, Without

Contrary to other regulated sectors where capital expenditure and tariff are defined, how RIL’s capital expenditure was approved in a non-transparent manner, Chalsani wondered and said that high capital cost by gas producer would only lead to lower returns for the government and high prices for the end users. Chelsani’s comments coincide with the

on-going exercise in the government for fixing the price of natural gas and the formula by RIL, which seeks to sell gas at up $to 4.58 per million British thermal unit at the land-fall point at Kakinada in Andhra Pradesh. After detailed discussions, the Committee of Secretaries has sent its recommendations to the Petroleum Ministry, amid reports of

inter-ministerial differences on the issue, for further action and a decision is expected to be announced soon.

The suggestion by the Anil Ambani Group that arbitrary high prices of Natural Gas will hurt Power and Fertiliser sectors has been contested by many experts who feel that the goalpost cannot be shifted after the terms have been settled while allocating gas field for exploration by the ministry.

When E&P was controlled and under the cost plus fixed return regime the E&P sector could not take off as no one was willing to deploy risk capital in which all the costs incurred in blocks/ wells that did not achieve commerciality is only borne by operator while on striking hydrocarbon the proceeds are shared with govt which pockets the larger

share by the virtue of the “quantum of govt take” being the criterion for award of block.

Further, power based on standard equip and technology available widely. Deep water is a frontier technology with operations and technology akin to exploring the moon/space. Reservoir risk is huge and has hurt the biggest companies as geology 3 km under sea level may differ widely and is specific to that operation only.

Despite this difference and relative simplicity of power sector, private investments are dismal, though tall statements are made of the thousands of megawatt plans even though the existing capacity may not cross 1000 MW.

Small companies with negligible existing capacity and no capacity addition in the past decade are laughably claiming that gas price could affect investment in this area.

Reliance sources added that the serious power companies Tata, AES and Torrent have indicated their extreme satisfaction with price and are ready to pay a substantial premium. Some companies that have never ever executed any large project will keep finding reasons to hide their incompetence.

Despite the regulation that is much touted the consumer are forced to bear costs resulting from poor and careless decision of power companies as was the case recently in which power companies are making the consumer bear the take or pay charges resulting from the poorly planned power offtake commitments.

In contrast the E&P activity in India is moving at great pace and serious investments and money has already been spent on the ground. Perhaps these upstream companies should be invited by the govt to set up even the power projects so that power sector finally wakes up.

On the issue of arbitrary capital cost, the DGH official commented that it seems that REL is not aware that there is a procurement process manual that is comprehensive with extensive procedures and checks and balances on the costing. Any amount that is extravagant or could have been managed prudently will not be approved for cost recovery. The official added that RIL has categorically welcomed any verification or auditing by the govt and CAG or others as they have innovatively finalised the inputs at the lowest

cost/unit basis anywhere in the world. Hence again this is a bogey that should be dismissed.

On the issue of PSC stipulating policy on pricing and allocation, a senior official of the MoPNG commented that the contract required the price to be based on prevailing policy if any and the process of approving / validating the operators price the govt could delegate this function to the regulator when created for the purpose and the operating part is “delegate” clearly establishing the unconditional right of the govt to ensure that

market determined rates are obtained. Even in the current instance, RIL’s submission will be assessed as que per què the pricing committee recommendations.

On the allocation of gas the govt is very keen to implement the same as soon as possible as gas is a national asset that one can allot to another due to non commercial and internal family arrangements. Recently DGH has asked the govt to track the RNRL court case and take appropriate steps as RIL can only sell its portion of the cost and profit gas and any contract to sell the portion of govt’s gas and that of Niko is infructious and cannot pass legal scrutiny and for his purpose govt has added this clause to

the PSC.

Technorati Tags: Adag, Arbitrary, Feels, Pricing

India has attracted 7.2 billion dollar investment in oil and gas hunt through New Exploration Licensing Policy that promised the right to sell the discovered oil and gas at market prices. However, international investors took a serious note when the government formed a committee to look into pricing of gas from Reliance Industries’ NELP-I block.

“Were the Government to consider the reintroduction of some form of administered pricing for natural gas, we would be concerned since, as a long term investor in India, of primary importance to us is fiscal stability for the life of our contract,” Ashok K Jhawar, country head, BP, which had won to areas for extraction of gas from coal seams (CBM), wrote to Petroleum Minister Murli Deora.

BG India managing director William Adamson on July 10 wrote to Cabinet Secretary K M Chandrasekhar that such a development “would dampen the pace of exploration and erode the confidence of the international companies in the forthcoming bidding rounds”.

India is planning the seventh round of auction in August. Chevron India president John R Digby wrote to Deora on July 2 that “market forces should drive the destination, customer selection and pricing of gas in India”.

Hardy Exploration vice president Ashu Sagar wrote “any action to renege on commitments will weaken investor confidence not only in NELP but also in Indian contracts.” MORE PTI ANZ UPD 07221340 DEL BP said subsidies in energy pricing should come at the consumer end, not at exploration end. Otherwise, “countries which set an unrealistic wellhead price for gas suffer from lack of exploration and development since exploration investment tend to flow to higher-priced locations”.

Niko Resources, one of the first foreign firms to invest in country’s oil and gas hunt, said “we are concerned with the recent developments, wherein there is sustained pressure and coercion being exerted (on Reliance) from various sectors (notably power) to reconsider market-determined price”.

“We consider such influence being made on gas pricing to be non-compliant with the rights provided to the contractor for marketing of gas at ‘arms-length prices to the benefit of parties to the contract (Reliance and Government)’ under the Production Sharing Contract,” Niko chairman Edward S Sampson wrote to Petroleum Secretary M S Srinivasan on July 3.

Hardy said the Production Sharing Contract for areas auctioned in six NELP rounds guarantee a market determined price. “By artifically imposing (price) restriction, the Government shall impose a country and political risk.”

BG said Indian exploration and production scenario had undergone profound changes post NELP and some dramatic results have been obtained in terms of discovery of large oil and gas reserves as well as the emergence of the East coast offshore as a major hydrocarbon province.

Niko said contractors like Reliance invested in fields “keeping in mind the favourable fiscal terms offered under PSC and the anticipated decent return on investment based on competitive hydrocarbon pricing that the PSC provides for.

“The establishment and realisation of a market determined price is what will allow for ensuring the fiscal terms remain internationally competitive, which in turn will induce more such investment from companies like ours,” it said.

Technorati Tags: Areas, Govt, Hardy, Nelp, Pricing, Slam, Under